Frontier Markets: Investing In Mongolia

On the outskirts of Ulaanbaatar, a nomadic family of herders is sitting outside their ger (the family tent commonly called a “yurt” in the West) watching BloombergBloomberg TV…on a high-definition flat-screen television powered by a mobile solar generator and a satellite dish.

Only in Mongolia.

As HarrisHarris Kupperman, President of Miami-based hedge fund Praetorian Capital, steps inside the ger, the man of the house—smartphone in hand—asks: “Mr. Kupperman, you’re a money man. I’ve been watching the news about the crisis in the Eurozone. How do you see this affecting the price of my cashmere?”

This particular blend of sophistication and simplicity is a mixture you will find—again—only in Mongolia.

Though it is far off the beaten path of most investors, Mongolia has quietly emerged as the fastest-growing economy in the world. In 2014, the Mongolian economy is expected to grow by a blistering 15.3%, and the IMFIMF expects it to be the fastest-growing economy in the world over the next decade.

If you haven’t heard about the Mongolian growth story, there is a good reason. Despite its recent growth, Mongolia’s GDP is only around $11 billion. To put that in perspective, the economy of West Virginia is roughly six times as large. And Mongolia, despite its enormous size (more than double the size of Texas), has a population of only about 2.8 million people—roughly 30% of whom still live a nomadic or seminomadic lifestyle.

Yet a surprising 70% of Mongolian nomads have access to electricity and with it communications. And given Mongolia’s richness in natural resources—Marc Faber called Mongolia the “Saudi Arabia of Asia”—and its strategic location next to China, the worlds’ most rapacious consumer of natural resources, there is every reason to believe that the boom is sustainable.

Kupperman, who in addition to his responsibilities at Praetorian Capital also serves as Chairman and CEO of Mongolia Growth Group (MNGGF), was gracious enough to sit down with me for a Skype interview from his office in Ulaanbaatar. Here are some of the highlights:

Sizemore: Thanks for taking the time, Harris. I want to start with the most obvious question: Why Mongolia?

Kupperman: One word: growth. In the developed markets, we’re lucky to get 1%-2% GDP growth in a year. In Mongolia, we see that in a month. But unlike some of the other high-growth markets out there—think Iraq or Libya—Mongolia is actually safe and politically stable, and the people are very welcoming to foreigners. There is roughly $2 trillion of mining commodities in the ground, and this could easily be a $100-billion economy by 2025. We’re simply looking to put our capital in front of that growth.

Sizemore: As far back as 2003, when he published Adventure Capitalist, Jim Rogers spoke of “digital Mongolia” and noted that Mongolia was leapfrogging legacy technology—things like power and phone lines—and jumping directly into the digital era. What has your experience been?

Kupperman: I find that the internet works when the electricity works [laughing]. No, in all seriousness, I rarely have problems here. The internet speeds are generally a lot faster than what I get in Miami…and this in a country with few paved roads. I’ve been very impressed by how quickly Mongolians adapt to new technology. Remember, this was a very simple pastoral economy just a few years ago, but today herders have access to real-time market data via smartphones. In the past, a herder had very little negotiating power with the middlemen that bought their cashmere and sold it on international markets. The trader had a big informational advantage, and the herder generally had to take whatever price was offered. But today, the herders have access to the same information as the traders.

Sizemore: What about China? Are you concerned about China’s slowing growth and what that might mean for Mongolia?

Kupperman: I’m not that concerned. Sure, Chinese growth is slowing. But it’s still growing at a phenomenal rate for an economy of its size, and, frankly, the Chinese government can’t afford to let the growth story fall apart. The Chinese boom will last longer that just about anyone today thinks possible. There will be ups and downs, of course, and the double-digit growth is probably gone forever. But I think the broader China growth story still has another several decades before it really hits a wall.

Sizemore: You’ve convinced me on the Mongolia growth story. Now, how to you plan to profit from it? Mongolian equities?

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.